May 21, 2020 | by Indre Bauza
This article was revised on June 11, 2020 to reflect the latest updates to the Small Business Administration's (SBA's) Paycheck Protection Program (PPP). Please visit the SBA site for the most current details.
As a responsible business owner concerned about retaining your employees during the coronavirus pandemic, you immediately applied for a loan through the PPP. And you were fortunate to be among those who received one.
But your work isn't done. Being a responsible business owner also means following PPP instructions so that your loan will be forgiven. That may yet prove to be difficult.
A Work in Progress
The PPP initially stipulated that as long as 75% or more of PPP funds went toward payroll costs within eight weeks, the loan would be forgiven. When the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) was signed into law on June 5, these two thresholds changed. Now, businesses must put at least 60% of PPP funds toward payroll costs within 24 weeks for loan forgiveness.
The PPPFA also included revisions affecting the calculation of full-time employees and deferring payment of the employer share of the Social Security tax.
Two other important changes to the PPP were previously announced in an FAQs document that the SBA released on May 13.
First of all, in response to larger businesses and franchises attempting to tap into PPP funds, the SBA wrote: "[I]t is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification."
Of greater relevance to small businesses, the May 13 FAQs also stated that companies receiving PPP loan amounts of under $2 million "will be deemed to have made the required certification concerning the necessity of the loan request in good faith." That is, the SBA is assuming the pandemic has caused economic harm for your business — you won't need to show proof of financial hardship to be eligible for loan forgiveness.
As Forbes points out, though, this clarification "doesn't negate other requirements of the PPP program such as tracking how much money went to qualifying expenses like payroll and rent." So for independent small businesses that met the original PPP criteria — and it's worth reviewing what they were at the start — the best bet is to make a good-faith effort to meet the terms as you understand them and to control what you can control.
Going by the Book(keeping)
The simplest way to establish a good-faith attempt at compliance is through complete documentation of your PPP loan disbursement, supported by bookkeeping best practices. Here are several ways to make tracking and document your loan spend easier:
Don't Hesitate to Seek Help
Tracking loan spend properly can help ensure your loan will be forgiven. It's worth making sure you have a qualified bookkeeping professional oversee this process. An outsourced bookkeeping services provider will have the remote capability, the cloud-based tools and the processes in place to accurately track your PPP loan spend.
It's worth repeating: You are a responsible business owner. You've done all you can to safeguard your business and employees and to adhere to the SBA's ever-evolving guidelines. Now the best thing you can do is let your bookkeeping services provider stay on top of the details as you begin mapping out a strategy for moving your business forward once your PPP loan runs out.
Indre Bauza is Managing Director of Supporting Strategies | Northern Virginia.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
Supporting Strategies is not a CPA firm.